GBP/USD Forecast: Pound Sterling could extend correction if 1.3530 support fails
- GBP/USD fluctuates at around 1.3550 in the European session on Tuesday.
- Technical sellers could show interest in case 1.3530 support fails.
- The UK's Office for National Statistics (ONS) will publish May inflation data on Wednesday.
GBP/USD stays on the back foot and trades near 1.3550 in the European session on Tuesday after posting small gains on Monday. The pair could extend its decline if the support level at 1.3530 fails.
British Pound PRICE This week
The table below shows the percentage change of British Pound (GBP) against listed major currencies this week. British Pound was the weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.17% | 0.15% | 0.20% | -0.17% | -0.67% | -0.75% | 0.09% | |
| EUR | 0.17% | 0.18% | 0.35% | -0.01% | -0.40% | -0.59% | 0.27% | |
| GBP | -0.15% | -0.18% | 0.20% | -0.19% | -0.58% | -0.77% | 0.09% | |
| JPY | -0.20% | -0.35% | -0.20% | -0.37% | -1.18% | -1.28% | -0.50% | |
| CAD | 0.17% | 0.00% | 0.19% | 0.37% | -0.43% | -0.58% | 0.28% | |
| AUD | 0.67% | 0.40% | 0.58% | 1.18% | 0.43% | -0.19% | 0.68% | |
| NZD | 0.75% | 0.59% | 0.77% | 1.28% | 0.58% | 0.19% | 0.86% | |
| CHF | -0.09% | -0.27% | -0.09% | 0.50% | -0.28% | -0.68% | -0.86% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).
The improving risk mood made it difficult for the US Dollar (USD) to stay resilient against its peers on Monday and helped GBP/USD push higher. The Wall Street Journal reported that Iran was looking to end hostilities with Israel and resume talks about its nuclear program. Major equity indexes ended the day decisively higher, reflecting a risk-positive market atmosphere.
Early Tuesday, investors turn cautious and allow the USD to hold its ground as the Israel-Iran conflicts enters its fifth day. Citing Iran's IRNA news agency, Reuters reported that Iran has recently launched a "more powerful" new wave of missiles toward Israel. Additionally, a senior commander for the Iranian army noted that a new wave of hundred of drones will soon hit Israel.
In the second half of the day, the US economic calendar will offer Retail Sales and Industrial Production data for May. A significant negative surprise in the Retail Sales data could hurt the USD with the immediate reaction. Nonetheless, unless Wall Street stages a bullish opening, the USD could continue to benefit from safe-haven flows.
Early Wednesday, the UK's Office for National Statistics will publish the Consumer Price Index (CPI) data for May. Later in the day, the Federal Reserve (Fed) will announce monetary policy decisions and publish the revised Summary of Economic Projections. On Thursday, the Bank of England is expected to leave the bank rate unchanged at 4.25%.
GBP/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the 4-hour chart stays slightly below 50 and GBP/USD trades below the 20-period and the 50-period Simple Moving Averages (SMA), hinting at a bearish tilt on the short-term outlook.
On the downside, the 100-period SMA forms the first support level at 1.3530 ahead of 1.3500 (round level, static level) and 1.3430 (200-period SMA). Looking north, resistance levels could be spotted at 1.3570 (20-period SMA), 1.3600 (static level, support level) and 1.3630 (mid-point of the ascending channel).
Pound Sterling FAQs
The Pound Sterling (GBP) is the oldest currency in the world (886 AD) and the official currency of the United Kingdom. It is the fourth most traded unit for foreign exchange (FX) in the world, accounting for 12% of all transactions, averaging $630 billion a day, according to 2022 data. Its key trading pairs are GBP/USD, also known as ‘Cable’, which accounts for 11% of FX, GBP/JPY, or the ‘Dragon’ as it is known by traders (3%), and EUR/GBP (2%). The Pound Sterling is issued by the Bank of England (BoE).
The single most important factor influencing the value of the Pound Sterling is monetary policy decided by the Bank of England. The BoE bases its decisions on whether it has achieved its primary goal of “price stability” – a steady inflation rate of around 2%. Its primary tool for achieving this is the adjustment of interest rates. When inflation is too high, the BoE will try to rein it in by raising interest rates, making it more expensive for people and businesses to access credit. This is generally positive for GBP, as higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls too low it is a sign economic growth is slowing. In this scenario, the BoE will consider lowering interest rates to cheapen credit so businesses will borrow more to invest in growth-generating projects.
Data releases gauge the health of the economy and can impact the value of the Pound Sterling. Indicators such as GDP, Manufacturing and Services PMIs, and employment can all influence the direction of the GBP. A strong economy is good for Sterling. Not only does it attract more foreign investment but it may encourage the BoE to put up interest rates, which will directly strengthen GBP. Otherwise, if economic data is weak, the Pound Sterling is likely to fall.
Another significant data release for the Pound Sterling is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought-after exports, its currency will benefit purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
